IS Vocabulary
Expenses that cannot be traced directly to operations.
Other Expenses
Merchandise on hand at the end of an accounting period.
Merchandise inventory
Freight terms in which the seller pays the transportation costs from the shipping point to the final place.
FOB (free on board) destination
On Mar. 3rd Sold merchandise for $11,350 plus 6% sales tax to retail cash customers.
The cost of merchandise sold was $7,000.
3 DR Cash12,031
CR Sales11,350
CR Sales Tax Payable681
3 DR Cost of Merchandise Sold7,000
CR Merchandise Inventory7,000
President's salaries, depreciation of office furniture, and office supplies are examples of what type of expenses
Administrative Expenses
Expenses incurred in the administration or general operations of a business.
Administrative expenses (general expenses)
A current asset that is reported on the balance sheet after merchandise inventory because it relates to that account.
Estimated returns inventory
Freight terms in which the buyer pays the transportation costs from the shipping point to the final destination.
FOB (free on board) shipping point
On Mar. 18 Issued credit memo for $4,800 to Targhee Co. for merchandise returned from sale on March 16 (terms were 1/10, n/30). The cost of the merchandise returned was $2,900.
Mar.18
DR Customer Refunds Payable4,752
CR Accts Rec—Targhee Co.4,752
[$4,800 – ($4,800 × 1%)]
The inventory system employing accounting records that continuously disclose the amount of inventory is called
Perpetual Inventory System
The cost that is reported as an expense when goods or merchandise is sold.
Cost of Merchandise Sold
(Cost of Goods Sold
Cost of Revenue)
The amount by which the merchandise for sale, as indicated by the balance of the merchandise inventory account, is larger than the total amount of merchandise counted during the physical inventory.
Inventory shrinkage (inventory shortage)
Merchandise=110,000
Freight Paid by Seller =1,575
Freight Terms = FOB destination, 2/10, n/30 Returns and Allowances = 8,500
What is the invoice amount?
$99,470.
Purchase of $107,800 [$110,000 – ($110,000 × 2%)] less return of $8,330 [$8,500 – ($8,500 × 2%)].
Oct. 3rd
Purchased merchandise from Hoagie Co., $9,950, terms FOB shipping point, 2/10, n/eom.
Prepaid freight of $220 was added to the invoice
3 DR Merchandise Inventory9,971
CR Accts Payable—Hoagie Co.9,971
[$9,950 – ($9,950 × 2%)] + $220
Discounts from the list prices in published catalogs or special discounts offered to certain classes of buyers.
Trade Discounts
Sales minus the cost of merchandise sold.
Gross profit
Paragon Tire Co.’s perpetual inventory records indicate that $2,780,000 of merchandise should be on hand on March 31, 2019. The physical inventory indicates that $2,734,800 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Paragon Tire Co. for the year ended March 31, 2019.
DR-Cost of Merchandise Sold 45,200
CR-Merchandise Inventory 45,200
Inventory shrinkage ($2,780,000 – $2,734,800).
If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as
FOB Shipping Point
Apr 15th Paid $6,544 to state sales tax division for taxes owed on sales.
15 DR Sales Tax Payable 6,544
CR Cash 6,544
The Father of Accounting
Luca Pacioli
During the current year, merchandise is sold for $31,850,000.
The cost of the merchandise sold is $24,206,000.
What is the amount of the gross profit?
$7,644,000
What is the normal balance of the following accounts: (a) Cost of Merchandise Sold, (b) Customer Refunds Payable, (c) Delivery Expense, (d) Estimated Returns Inventory, (e) Merchandise Inventory, (f) Sales, (g) Sales Tax Payable.
a.debit
b.credit
c.debit
d.debit
e.debit
f.credit
g.credit
When the seller is paying the delivery costs for the buyer the journal entry would include a credit to cash and a debit to
Delivery Expense
Summit Company sold merchandise on account to Beartooth Co., $48,000, terms FOB destination, 2/15, n/eom. The cost of the merchandise sold was $28,800. Delivery Cost was $1,150.
Journal Entries for seller.
Seller Summit
DR Accts Rec—Beartooth Co.47,040
CR Sales47,040
[$48,000 – ($48,000 × 2%)]
DR Cost of Merchandise Sold28,800
CR Merchandise Inventory28,800
DR Delivery Expense 1,150
CR Cash 1,150
A form used by a buyer to inform the seller of the amount the buyer proposes to the account payable due the seller.
Debit memorandum (debit memo)